This document discusses different types of societies that can be formed under UK's Industrial and Provident Societies (IPS) legislation to operate community energy initiatives. It describes the main forms as bona fide co-operatives, community benefit societies, and charitable community benefit societies. It provides details on their purposes, governance structures, and considerations for choosing between society forms. The document emphasizes the importance of establishing proper governing rules and ensuring good governance practices for community investment organizations.

1. Proposed Rules of
EnergySE London
Following Co-operatives UK
Community Finance Model Rules

2. Industrial and Provident Societies (IPS)
• All the Community Energy Co-ops have to date
registered under Industrial and Provident Society
Legislation (1965)
• The above means that Community Energy
initiatives have not registered as companies or
charities
• The main reason for choosing IPS’s is because
they can issue a community share offer which is
not possible as a charity and very difficult and
expensive as a company unless the company is a
PLC

3. Industrial and Provident Societies (IPS)
• There are three main forms of industrial and provident
society: a bona fide co-operative, a community benefit
society, and a charitable community benefit society.
• Industrial and provident society legislation also makes
provisions for credit unions, but these are subject to
separate legislation. Two other forms of mutual
societies: building societies and friendly societies, are
also subject to separate legislation.
• All three main forms of industrial and provident
society can issue the same types of share capital,
including withdrawable share capital, which is also
known as community shares.

4. Bona Fida Co-operatives
• Industrial and provident society legislation refers to a bona
fide co-operative society, but the legislation does not
define or describe what a bona fide co-operative society is.
Instead, it is left to the Financial Conduct Authority, the
body responsible for registering societies, to determine
whether a society is a bona fide co-operative.
• A co-operative is defined as “an autonomous association
of persons united voluntarily to meet their common
economic, social, and cultural needs and aspirations
through a jointly owned and democratically controlled
enterprise.” Co-operatives “are based on the values of
self-help, self-responsibility, democracy, equality, equity
and solidarity. In the tradition of co-operative founders, co-
operative members believe in the ethical values of
honesty, openness, social responsibility and caring for
others.”

5. Community Benefit Societies
• A community benefit society (called a benefit of
the community society by the FCA) is run primarily
for the benefit of the community at large, rather
than just for members of the society. This means
that it must have an overarching community
purpose that reaches beyond its membership.
• An applicant society must specify the geographic
community, community of interest, or other group
of people it intends to serves. It must state what
these activities of benefit will be, and explain how
they will benefit the community. It must also state
how the surpluses of the society will be used.

6. Charitable Community Benefit Societies
• A charitable community benefit society is a community benefit
society with charitable purposes.
• A charitable community benefit society must only have
exclusively charitable objects. This means that a charitable
community benefit society that intends to engage in trading
activities that are neither in pursuit of its primary purpose nor
ancillary to that purpose, may have to establish a trading
subsidiary to carry out this trade.
• A charitable community benefit society cannot register as a
charity with the Charity Commission. Instead it must apply to
HMRC to be recognised as an exempt charity for tax purposes.
• Exempt charities are entitled to the same tax benefits as
registered charities. This includes relief from income tax,
corporation tax and capital gains tax, exemption from
inheritance tax and relief from business or non-domestic rates.

7. Choosing Between Society Forms
• All three types of society have their pros and cons. Co-operatives have the
scope to pay members a dividend based on the level of their transactions
with the co-operative, which can incentivise member loyalty and strengthen
the business model.
• Prescribed community benefit societies may provide greater reassurance to
public funders and grant-giving bodies that none of their money will end up
in private hands, while still giving the society greater freedom in their choice
of objects and purpose.
• Charitable community benefit societies enjoy all the tax benefits that apply
to charities, but are restricted to exclusively charitable purposes.
• Co-operatives might have greater appeal to members who are attracted by
the benefits of mutuality and community.
• Community benefit societies might be more appealing to members who put
wider community benefit before their mutual interests.
• Choosing between a co-operative society or community benefit society
structure is important because, while it is possible to convert a co-operative
into a community benefit society, it is not possible to convert a community
benefit society into a co-operative.

8. Governing Document: The Rules
A governing document will typically contain clauses relating to:
• The name of the organisation;
• The objects of the organisation;
• The powers of the organisation;
• The personal liability of the members;
• Membership of the organisation;
• The governing body;
• Meetings;
• Application of surplus;
• How the governing document can be amended or replaced;
and
• Dissolution and the distribution of assets of the organisation.

9. Governance of community investment
organisation
• There has been an upsurge recently in the creation of
community enterprises which use the society legal form to
raise funds from a geographical community or a community
of interest.
• These organisations will often have members who are simply
investors rather than having a direct trading relationship (as
worker or customer).
• The governance issues for such organisations are practically
the same as for other community enterprises although there
will be additional responsibilities for those creating such
organisations around exercising due diligence and
accountability to shareholders.

10. The Governance Grid
• It is important to continue the discussion on the rules and
the overall governance of the organisation.

11. Further reading
• We need to continue the discussion on rules in particular and
governance in general
• All those with an interest on this are advised to read Co-
operatives UK’s Simply Governance available at:
http://www.uk.coop/sites/storage/public/downloads/coopsuk_simplygov
ernance_webdownload_0.pdf
• Also available at our shared site “Delicious.com”